10-Q 1 a2208976z10-q.htm 10-Q

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 30, 2012

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-13836
(Commission File Number)



TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)
  98-0390500
(I.R.S. Employer Identification Number)

Freier Platz 10, CH-8200 Schaffhausen, Switzerland
(Address of registrant's principal executive office)

41-52-633-02-44
(Registrant's telephone number)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller
reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý

        The number of common shares outstanding as of April 23, 2012 was 462,862,394.

   


TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

 
   
  Page
Part I.   Financial Information    

Item 1.

 

Financial Statements

 

1


 

Consolidated Statements of Operations (Unaudited) for the quarters and six months ended March 30, 2012 and March 25, 2011

 

1


 

Consolidated Balance Sheets (Unaudited) as of March 30, 2012 and September 30, 2011

 

2


 

Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 30, 2012 and March 25, 2011

 

3


 

Consolidated Statements of Shareholders' Equity (Unaudited) for the six months ended March 30, 2012 and March 25, 2011

 

4


 

Notes to Consolidated Financial Statements (Unaudited)

 

5

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

47

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

66

Item 4.

 

Controls and Procedures

 

66

Part II.

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

67

Item 1A.

 

Risk Factors

 

71

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

78

Item 3.

 

Defaults Upon Senior Securities

 

78

Item 4.

 

Reserved

 

78

Item 5.

 

Other Information

 

78

Item 6.

 

Exhibits

 

79

Signatures

 

80

Table of Contents


PART I. FINANCIAL INFORMATION

        

Item 1.    Financial Statements

        


TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share data)

 
  For the
Quarters Ended
  For the
Six Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Revenue from product sales

  $ 2,406   $ 2,118   $ 4,700   $ 4,625  

Service revenue

    1,948     1,874     3,861     3,745  
                   

Net revenue

    4,354     3,992     8,561     8,370  

Cost of product sales

    1,674     1,468     3,239     3,241  

Cost of services

    1,002     976     1,980     1,952  

Selling, general and administrative expenses

    1,109     1,085     2,232     2,222  

Separation costs (see Note 2)

    66         98      

Restructuring, asset impairments and divestiture charges (gains), net (see Notes 3 and 4)

    19     26     56     (188 )
                   

Operating income

    484     437     956     1,143  

Interest income

    6     9     13     18  

Interest expense

    (60 )   (63 )   (119 )   (125 )

Other expense, net

    (6 )   (6 )   (14 )   (6 )
                   

Income from continuing operations before income taxes

    424     377     836     1,030  

Income tax expense

    (90 )   (57 )   (168 )   (220 )
                   

Income from continuing operations

    334     320     668     810  

(Loss) income from discontinued operations, net of income taxes

    (7 )   (4 )   (7 )   165  
                   

Net income

    327     316     661     975  

Less: noncontrolling interest in subsidiaries net income

        1     1     1  
                   

Net income attributable to Tyco common shareholders

  $ 327   $ 315   $ 660   $ 974  
                   

Amounts attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 334   $ 319   $ 667   $ 809  

(Loss) income from discontinued operations

    (7 )   (4 )   (7 )   165  
                   

Net income attributable to Tyco common shareholders

  $ 327   $ 315   $ 660   $ 974  
                   

Basic earnings per share attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 0.72   $ 0.68   $ 1.44   $ 1.69  

(Loss) income from discontinued operations

    (0.01 )   (0.01 )   (0.02 )   0.34  
                   

Net income attributable to Tyco common shareholders

  $ 0.71   $ 0.67   $ 1.42   $ 2.03  
                   

Diluted earnings per share attributable to Tyco common shareholders:

                         

Income from continuing operations

  $ 0.71   $ 0.67   $ 1.42   $ 1.67  

(Loss) income from discontinued operations

    (0.01 )   (0.01 )   (0.01 )   0.34  
                   

Net income attributable to Tyco common shareholders

  $ 0.70   $ 0.66   $ 1.41   $ 2.01  
                   

Weighted average number of shares outstanding:

                         

Basic

    463     472     463     480  

Diluted

    469     477     469     485  

   

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except per share data)

 
  March 30,
2012
  September 30,
2011
 

Assets

             

Current Assets:

             

Cash and cash equivalents

  $ 1,086   $ 1,390  

Accounts receivable, less allowance for doubtful accounts of $118 and $110, respectively

    2,441     2,400  

Inventories

    1,543     1,343  

Prepaid expenses and other current assets

    992     896  

Deferred income taxes

    401     402  

Assets held for sale

        2  
           

Total current assets

    6,463     6,433  

Property, plant and equipment, net

    4,150     4,051  

Goodwill

    10,130     9,999  

Intangible assets, net

    3,745     3,628  

Other assets

    2,574     2,666  
           

Total Assets

  $ 27,062   $ 26,777  
           

Liabilities and Equity

             

Current Liabilities:

             

Loans payable and current maturities of long-term debt

  $ 3   $ 2  

Accounts payable

    1,326     1,278  

Accrued and other current liabilities

    2,276     2,407  

Deferred revenue

    681     643  
           

Total current liabilities

    4,286     4,330  

Long-term debt

    4,137     4,146  

Deferred revenue

    1,151     1,143  

Other liabilities

    2,803     2,878  
           

Total Liabilities

    12,377     12,497  
           

Commitments and Contingencies (see Note 11)

             

Redeemable noncontrolling interest (see Note 14)

    106     93  
           

Tyco Shareholders' Equity:

             

Common shares, CHF 6.70 par value, 825,222,070 shares authorized, 486,414,669 shares issued as of March 30, 2012 and September 30, 2011, respectively

    2,792     2,792  

Common shares held in treasury, 24,202,221 and 21,790,502 shares, as of March 30, 2012 and September 30, 2011, respectively

    (1,060 )   (951 )

Contributed surplus

    10,418     10,717  

Accumulated earnings

    2,718     2,058  

Accumulated other comprehensive loss

    (306 )   (434 )
           

Total Tyco Shareholders' Equity

    14,562     14,182  

Nonredeemable noncontrolling interest

    17     5  
           

Total Equity

    14,579     14,187  
           

Total Liabilities, Redeemable Noncontrolling Interest and Equity

  $ 27,062   $ 26,777  
           

   

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 
  For the Six Months Ended  
 
  March 30,
2012
  March 25,
2011
 

Cash Flows From Operating Activities:

             

Net income attributable to Tyco common shareholders

  $ 660   $ 974  

Noncontrolling interest in subsidiaries net income

    1     1  

Loss (income) from discontinued operations, net of income taxes

    7     (165 )
           

Income from continuing operations

    668     810  

Adjustments to reconcile net cash provided by operating activities:

             

Depreciation and amortization

    675     645  

Non-cash compensation expense

    52     59  

Deferred income taxes

    76     122  

Provision for losses on accounts receivable and inventory

    61     48  

Loss (gain) on divestitures

    3     (233 )

Other non-cash items

    61     36  

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

             

Accounts receivable, net

    (16 )   (43 )

Contracts in progress

    (9 )   (53 )

Inventories

    (184 )   (165 )

Prepaid expenses and other current assets

    (29 )   (13 )

Accounts payable

    3     (99 )

Accrued and other liabilities

    (290 )   (282 )

Deferred revenue

    33     67  

Other

    (50 )   13  
           

Net cash provided by operating activities

    1,054     912  
           

Net cash used in discontinued operating activities

        (8 )
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (431 )   (361 )

Proceeds from disposal of assets

    3     5  

Acquisition of businesses, net of cash acquired

    (205 )   (9 )

Acquisition of dealer generated customer accounts and bulk account purchases

    (336 )   (279 )

Divestiture of businesses, net of cash divested

    (4 )   706  

Other

    64     23  
           

Net cash (used in) provided by investing activities

    (909 )   85  
           

Net cash provided by discontinued investing activities

        259  
           

Cash Flows From Financing Activities:

             

Proceeds from issuance of short-term debt

    880      

Repayment of short-term debt

    (880 )   (532 )

Proceeds from issuance of long-term debt

        497  

Repayment of long-term debt

    (2 )   (2 )

Proceeds from exercise of share options

    88     64  

Dividends paid

    (231 )   (224 )

Repurchase of common shares by treasury

    (300 )   (1,000 )

Transfer from discontinued operations

        251  

Other

    (19 )   10  
           

Net cash used in financing activities

    (464 )   (936 )
           

Net cash used in discontinued financing activities

        (251 )
           

Effect of currency translation on cash

    15     14  
           

Net (decrease) increase in cash and cash equivalents

    (304 )   75  

Decrease in cash and cash equivalents from deconsolidation of variable interest entity

        (10 )

Cash and cash equivalents at beginning of period

    1,390     1,775  
           

Cash and cash equivalents at end of period

  $ 1,086   $ 1,840  
           

   

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Six Months Ended March 30, 2012 and March 25, 2011

(in millions)

 
  Number of
Common
Shares
  Common
Shares at
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
  Accumulated
Other
Comprehensive
(Loss)
Income
  Total Tyco
Shareholders'
Equity
  Nonredeemable
Noncontrolling
Interest
  Total
Equity
 

Balance as of September 24, 2010

    488   $ 2,948   $ (976 ) $ 12,121   $ 312   $ (321 ) $ 14,084   $ 17   $ 14,101  

Comprehensive income:

                                                       

Net income

                            974           974     1     975  

Deconsolidation of variable interest entity due to adoption of an accounting standard

                                            (11 )   (11 )

Currency translation, net of income tax of $1 million

                                  137     137           137  

Unrealized loss on marketable securities, net of income tax benefit of $1 million

                                  (2 )   (2 )         (2 )

Retirement plans, net of income taxes of $4 million

                                  40     40           40  
                                                   

Total comprehensive income

                                        1,149     (10 )   1,139  

Dividends declared (See Note 13)

          4           (468 )               (464 )         (464 )

Shares issued from treasury for vesting of share based equity awards

    4           154     (90 )               64           64  

Repurchase of common shares

    (24 )         (1,000 )                     (1,000 )         (1,000 )

Compensation expense

                      58                 58           58  

Other

                (5 )         2           (3 )   (1 )   (4 )
                                       

Balance as of March 25, 2011

    468   $ 2,952   $ (1,827 ) $ 11,621   $ 1,288   $ (146 ) $ 13,888   $ 6   $ 13,894  
                                       

 

 
  Number of
Common
Shares
  Common
Shares at
Par Value
  Treasury
Shares
  Contributed
Surplus
  Accumulated
Earnings
  Accumulated
Other
Comprehensive
(Loss)
Income
  Total Tyco
Shareholders'
Equity
  Nonredeemable
Noncontrolling
Interest
  Total
Equity
 

Balance as of September 30, 2011

    465   $ 2,792   $ (951 ) $ 10,717   $ 2,058   $ (434 ) $ 14,182   $ 5   $ 14,187  

Comprehensive income:

                                                       

Net income

                            660           660           660  

Currency translation, net of income tax expense of $1 million

                                  119     119           119  

Unrealized gain on marketable securities and derivative instruments, net of income tax benefit of $3 million              

                                  2     2           2  

Retirement plans, net of income tax expense of $4 million              

                                  7     7           7  
                                                   

Total comprehensive income

                                        788         788  

Dividends declared (See Note 13)

                      (229 )               (229 )         (229 )

Shares issued from treasury for vesting of share based equity awards

    4           210     (122 )               88           88  

Repurchase of common shares

    (7 )         (300 )                     (300 )         (300 )

Compensation expense

                      52                 52           52  

Non-controlling interest related to acquisitions

                                              13     13  

Other

                (19 )                     (19 )   (1 )   (20 )
                                       

Balance as of March 30, 2012

    462   $ 2,792   $ (1,060 ) $ 10,418   $ 2,718   $ (306 ) $ 14,562   $ 17   $ 14,579  
                                       

   

See Notes to Consolidated Financial Statements.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Presentation and Summary of Significant Accounting Policies

        Basis of Presentation—The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The unaudited Consolidated Financial Statements include the consolidated results of Tyco International Ltd., a corporation organized under the laws of Switzerland, and its subsidiaries (Tyco and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Tyco"). The Consolidated Financial Statements have been prepared in United States dollars ("USD") and in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The results reported in these Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (the "2011 Form 10-K").

        Effective in the Company's second fiscal quarter of 2012, the Company reorganized its reportable segments to more closely align with its reporting and management structure, which had been realigned in anticipation of the spin-offs of the Company's ADT North American residential security business and its flow control business. See Note 2. Under the new reporting structure, the former Tyco Security Solutions segment was split between the new ADT North American Residential segment and the new Commercial Fire and Security segment. The new ADT North American Residential segment consists of the residential and small business security business in the United States and Canada that was formerly part of the Tyco Security Solutions segment. The new Commercial Fire and Security segment consists of (i) the former Tyco Fire Protection segment, (ii) the North American commercial security business that was formerly part of the Tyco Security Solutions segment, along with all of the security businesses outside of the United States and Canada, and (iii) the security products business that was formerly part of the Tyco Security Solutions segment. The Company's Flow Control segment continues as it has been historically constituted. As a result, prior period segment amounts have been recast to the current period presentation. See Note 16. The recast financial data does not constitute stand-alone historical financial statements for the entities that will be distributed in the spin-offs (and, in the case of Flow Control, the subsequent merger with Pentair, Inc. ("Pentair") (See Note 2)) and does not reflect any adjustments that are likely to be reflected therein. The combined historical financial statements for the entities to be distributed will be contained in documents to be filed with the U.S. Securities and Exchange Commission ("SEC") in connection with the spin-offs and associated transactions.

        As a result of this realignment, the Company has three reportable segments: Commercial Fire and Security, ADT North American Residential and Flow Control.

        References to 2012 and 2011 are to Tyco's fiscal quarters ending March 30, 2012 and March 25, 2011, respectively, unless otherwise indicated.

        The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal year 2012 will be a 52-week year, whereas fiscal 2011 was a 53-week year.

        Reclassifications—The Company has reclassified a business which has satisfied the criteria to be presented as discontinued operations to (loss) income from discontinued operations, net of income taxes in the Consolidated Statements of Operations and assets held for sale within the Consolidated Balance Sheet. See Note 3. In addition, prior period segment amounts have been recast to conform to the current period presentation as a result of the segment realignment discussed above. See Note 16.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1.    Basis of Presentation and Summary of Significant Accounting Policies (Continued)

        Recently Issued Accounting Pronouncements—In June 2011, the FASB issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income ("OCI") by eliminating the option to present OCI as part of the Consolidated Statement of Shareholders' Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company's Consolidated Financial Statements. The guidance requires that items of net income and OCI be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. In December 2011, the FASB issued authoritative guidance to defer the effective date for those aspects of the guidance relating to the presentation of reclassification adjustments out of accumulated other comprehensive income by component. The guidance must be applied retrospectively and is effective for Tyco in the first quarter of fiscal 2013, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance.

        In September 2011, the FASB issued authoritative guidance which expanded and enhanced the existing disclosure requirements related to multi-employer pension and other postretirement benefit plans. The amendments require additional quantitative and qualitative disclosures to provide more detailed information regarding these plans including: the significant multi-employer plans in which the Company participates, the level of the Company's participation and contributions with respect to such plans, financial health of such plans and indication of funded status. These disclosures are intended to provide users of financial statements with a better understanding of the employer's involvement in multi-employer benefit plans. The guidance must be applied retrospectively and is effective for Tyco for the fiscal 2012 annual period, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance along with what impact, if any, the guidance will have on its annual disclosures.

        In September 2011, the FASB issued authoritative guidance which amends the process of testing goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (defined as having a likelihood of more than fifty percent) that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the traditional two step goodwill impairment test is unnecessary. If an entity concludes otherwise, it would be required to perform the first step of the two step goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test. However, an entity has the option to bypass the qualitative assessment in any period and proceed directly to step one of the impairment test. The guidance is effective for Tyco for interim and annual impairment testing beginning in the first quarter of fiscal 2013, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance.

2.    2012 Separation Transaction

        On September 19, 2011, the Company announced that its Board of Directors ("the Board") approved a plan to separate the Company into three separate, publicly traded companies consisting of the Company's North American residential security business, its flow control business, and its commercial fire and security business by spinning off the North American residential security business and flow control business in a tax-free pro rata distribution to shareholders. On March 28, 2012, the

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2.    2012 Separation Transaction (Continued)

Company announced that it entered into a definitive agreement to combine its flow control business with Pentair in a tax-free, all-stock merger ("the Merger"), immediately following the spin off of the flow control business. Upon completion of the Merger, which has been unanimously approved by the Boards of both companies, Tyco shareholders are expected to own approximately 52.5% of the combined company and Pentair shareholders are expected to own approximately 47.5%. Completion of the separation transactions, including the Merger, is subject to the approval of the distributions by Tyco shareholders, the approval of the Merger by Pentair shareholders, regulatory approvals and customary closing conditions. The distributions, the merger and related transactions are collectively referred to herein as the "2012 Separation".

        During the quarter and six months ended March 30, 2012, the Company incurred $66 million and $98 million, respectively, of charges within separation costs in the Company's Consolidated Statement of Operations, primarily related to professional fees, as well as costs related to the Merger as noted above. The Company also incurred $23 million and $2 million of asset impairment charges and restructuring charges, respectively, during the six months ended March 30, 2012 related to the 2012 Separation which are recorded within restructuring, asset impairments and divestiture charges (gains), net in the Company's Consolidated Statement of Operations. See Note 4. The Company did not incur any separation related charges during the quarter or six months ended March 25, 2011.

3.    Divestitures

        The Company has continued to assess the strategic fit of its various businesses and has pursued divestiture of certain businesses which do not align with its long-term strategy.

Fiscal 2012

        During the quarter and six months ended March 30, 2012, the Company sold its Fire Equipment de Mexico, S.A. ("FEMSA") business, which was part of the Company's Commercial Fire and Security segment. The sale was completed for approximately $1 million of cash consideration and a pre-tax loss of $3 million was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations.

        Additionally, the quarter and six months ended March 30, 2012 include $11 million of income tax expense associated with pre-2007 Separation tax liabilities, which was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statements of Operations. The Company will be reimbursed $8 million pursuant to a tax sharing agreement (the "2007 Tax Sharing Agreement") entered into in conjunction with the spin-offs of Covidien and TE Connectivity (the "2007 Separation"), which was also recorded in (loss) income from discontinued operations net of income taxes.

Fiscal 2011

        On November 9, 2010, the Company announced that it entered into an investment agreement (the "Agreement") to sell a majority interest in its Electrical and Metal Products business to an affiliate of the private equity firm Clayton, Dubilier & Rice, LLC (the "Investor" or "CD&R"). The Company formed a newly incorporated holding company, Atkore International Group Inc. ("Atkore"), to hold the Company's Electrical and Metal Products business. On December 22, 2010, the transaction closed and the Investor acquired shares of a newly-created class of cumulative convertible preferred stock of Atkore (the "Preferred Stock"). The Preferred Stock initially represented 51% of the outstanding

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3.    Divestitures (Continued)

capital stock (on an as-converted basis) of Atkore. In connection with the closing, the Company received cash proceeds of approximately $713 million and recorded a gain of $259 million, which included $33 million of cumulative translation gain, during the first quarter of fiscal 2011. During the second quarter of fiscal year 2011, the Company recorded a working capital adjustment of $9 million that reduced the gain on disposal. The gain on disposal is recorded within restructuring, asset impairment and divestiture charges (gains), net in the Company's Consolidated Statements of Operations.

        In accordance with the terms and conditions of the Agreement, CD&R is entitled to a quarterly dividend which is payable in cash or in shares of Preferred Stock, at the discretion of Atkore. Since the closing of the transaction, Atkore has elected to pay CD&R's quarterly dividend in shares of Preferred Stock, which has diluted the Company's ownership in Atkore. As of March 30, 2012, the Company's ownership percentage was approximately 46%. Tyco's retained ownership interest in Atkore is accounted for under the equity method of accounting and is recorded in other assets in the Company's Consolidated Balance Sheet as of March 30, 2012 and September 30, 2011. The Company's proportionate share of Atkore's net loss is recorded within other expense, net in the Company's Consolidated Statements of Operations. The company recorded an equity loss of $2 million and $11 million for the quarter and six months ended March 30, 2012 and $7 million for both the quarter and six months ended March 25, 2011.

        On September 30, 2010, the Company sold its European water business, which was part of the Company's Flow Control segment. The sale was completed for approximately $264 million in cash proceeds, net of $7 million of cash divested on sale, and a pre-tax gain of $168 million was recorded, which was largely exempt from tax. The gain was recorded in (loss) income from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations.

        Net revenue, pre-tax loss from discontinued operations, pre-tax income (loss) on sale of discontinued operations, income tax (provision) benefit and (loss) income from discontinued operations, net of income taxes are as follows ($ in millions):

 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Net revenue

  $   $   $ 1   $ 4  
                   

Pre-tax loss from discontinued operations

  $   $   $   $ (5 )

Pre-tax income (loss) on sale of discontinued operations

    5     (5 )   5     168  

Income tax (provision) benefit

    (12 )   1     (12 )   2  
                   

(Loss) income from discontinued operations, net of income taxes

  $ (7 ) $ (4 ) $ (7 ) $ 165  
                   

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3.    Divestitures (Continued)

        There were no material pending divestitures as of March 30, 2012. Balance sheet information for material pending divestitures as of September 30, 2011 was as follows ($ in millions):

 
  As of
September 30,
2011
 

Accounts receivable, net

  $ 1  

Inventories

    1  
       

Total assets

  $ 2  
       

Divestiture Charges (Gains), Net

        For both the quarter and six months ended March 30, 2012, the Company recorded a net loss of $3 million in restructuring, asset impairments and divestiture charges (gains), net in the Company's Consolidated Statements of Operations in connection with the divestiture and write-down to fair value less cost to sell of certain businesses that did not meet the criteria for discontinued operations.

        During the quarter and six months ended March 25, 2011, the Company recorded a net loss of $13 million and a net gain of $233 million, respectively, in restructuring, asset impairments and divestiture charges (gains), net in the Company's Consolidated Statements of Operations in connection with the divestiture and write-down to fair value less cost to sell of certain businesses that did not meet the criteria for discontinued operations. The net gain for the six months ended March 25, 2011 includes a gain of $250 million which was subject to the settlement of working capital adjustments recognized in conjunction with the sale of a majority interest in the Company's Electrical and Metal Products business, as discussed above.

4.    Restructuring and Asset Impairment Charges, Net

        The Company continues to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's businesses and to prepare the Company for the anticipated 2012 Separation. The Company expects to incur restructuring and restructuring related charges of approximately $125 million to $150 million in fiscal 2012. The Company expects to incur an additional $125 million in restructuring and restructuring related charges in fiscal 2012 in conjunction with the 2012 Separation. See Note 2.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

        The Company recorded restructuring and asset impairment charges by program and Consolidated Statement of Operations classification as follows ($ in millions):

 
  For the Quarter
Ended March 30, 2012
  For the Quarter
Ended March 25, 2011
  For the Six Months
Ended March 30, 2012
  For the Six Months
Ended March 25, 2011
 

2012 actions

  $ 12   $   $ 44   $  

2011 program

    3     12     7     45  

2009 and prior programs

    1         2     (1 )
                   

Total restructuring and asset impairment charges, net

  $ 16   $ 12   $ 53   $ 44  
                   

Charges reflected in selling, general and administrative ("SG&A")

        (1 )       (1 )

Charges reflected in restructuring, asset impairments and divestiture charges (gains), net

  $ 16   $ 13   $ 53   $ 45  

2012 Actions

        Restructuring and asset impairment charges, net, during the quarter and six months ended March 30, 2012 related to the 2012 actions are as follows ($ in millions):

 
  For the Quarter Ended March 30, 2012  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

Commercial Fire and Security

  $ 10   $ 2   $ 12  

Flow Control

    1     1     2  

Corporate and Other

    (2 )       (2 )
               

Total

  $ 9   $ 3   $ 12  
               

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

 

 
  For Six Months Ended March 30, 2012  
 
  Employee
Severance and
Benefits(1)
  Facility Exit
and Other
Charges(2)
  Total  

Commercial Fire and Security

  $ 13   $ 26   $ 39  

Flow Control

    2     1     3  

Corporate and Other

    1     1     2  
               

Total

  $ 16   $ 28   $ 44  
               

(1)
Includes $1 million of charges related to the 2012 Separation recorded by Corporate and Other.

(2)
Includes $23 million of asset impairment charges recorded by Commercial Fire and Security, and $1 million of other restructuring charges recorded by Corporate and Other related to the 2012 Separation.

        The rollforward of the reserves from September 30, 2011 to March 30, 2012 is as follows ($ in millions):

Balance as of September 30, 2011

  $  

Charges

    22  

Reversals

    (2 )

Utilization

    (7 )
       

Balance as of March 30, 2012

  $ 13  
       

2011 Program

        During fiscal 2011, the Company continued to identify and pursue opportunities for cost savings through restructuring activities and workforce reductions to improve operating efficiencies across the Company's business (the "2011 Program").

        Restructuring and asset impairment charges, net, during the quarters and six months ended March 30, 2012 and March 25, 2011 related to the 2011 Program are as follows ($ in millions):

 
  For the Quarter Ended March 30, 2012  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

Commercial Fire and Security

  $ 1   $ 1   $ 2  

ADT North American Residential

        1     1  
               

Total

  $ 1   $ 2   $ 3  
               

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

 

 
  For the Quarter Ended March 25, 2011  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in
SG&A
  Total  

Commercial Fire and Security

  $ 4   $   $   $ 4  

ADT North American Residential

        1     (1 )    

Flow Control

    4     2         6  

Corporate and Other

    1     1         2  
                   

Total

  $ 9   $ 4   $ (1 ) $ 12  
                   

 

 
  For the Six Months Ended March 30, 2012  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Total  

Commercial Fire and Security

  $ 3   $ 1   $ 4  

ADT North American Residential

        3     3  

Flow Control

    (1 )       (1 )

Corporate and Other

        1     1  
               

Total

  $ 2   $ 5   $ 7  
               

 

 
  For the Six Months Ended March 25, 2011  
 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in
SG&A
  Total  

Commercial Fire and Security

  $ 30   $   $   $ 30  

ADT North American Residential

        3         3  

Flow Control

    4     2     (1 )   5  

Corporate and Other

    6     1         7  
                   

Total

  $ 40   $ 6   $ (1 ) $ 45  
                   

        Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2011 Program are as follows ($ in millions):

 
  Employee
Severance and
Benefits
  Facility Exit
and Other
Charges
  Charges
Reflected in Cost
of Sales
  Charges
Reflected in
SG&A
  Total  

Commercial Fire and Security

  $ 50   $ 6   $ 2   $   $ 58  

ADT North American Residential

    4     6             10  

Flow Control

    9     3         (1 )   11  

Corporate and Other

    6     7             13  
                       

Total

  $ 69   $ 22   $ 2   $ (1 ) $ 92  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4.    Restructuring and Asset Impairment Charges, Net (Continued)

        The rollforward of the reserves from September 30, 2011 to March 30, 2012 is as follows ($ in millions):

Balance as of September 30, 2011

  $ 53  

Charges

    13  

Reversals

    (6 )

Utilization

    (23 )
       

Balance as of March 30, 2012

  $ 37  
       

2009 and prior programs

        The Company continues to maintain restructuring reserves related to programs initiated prior to fiscal 2011. The total amount of these reserves were $60 million and $79 million as of March 30, 2012 and September 30, 2011, respectively. The Company incurred $1 million and $2 million of restructuring charges for the quarter and six months ended March 30, 2012, respectively, and nil and $1 million of income for the quarter and six months ended March 25, 2011, respectively, related to 2009 and prior programs. The net decrease in the reserves is primarily due to cash utilization of $21 million. The aggregate remaining reserves primarily relate to facility exit costs for long-term non-cancelable lease obligations primarily within the Company's Commercial Fire and Security and ADT North American Residential segments.

Total Restructuring Reserves

        As of March 30, 2012 and September 30, 2011, restructuring reserves related to all programs were included in the Company's Consolidated Balance Sheets as follows ($ in millions):

 
  As of
March 30,
2012
  As of
September 30,
2011
 

Accrued and other current liabilities

  $ 85   $ 99  

Other liabilities

    25     33  
           

Total

  $ 110   $ 132  
           

5.    Acquisitions

Acquisitions

        During the quarter ended March 30, 2012, cash paid for acquisitions included in continuing operations totaled $110 million, net of cash acquired of $10 million. All of these acquisitions were included in the Company's Commercial Fire and Security segment, none of which were material individually or in the aggregate. During the six months ended March 30, 2012, cash paid for acquisitions included in continuing operations totaled $205 million, net of cash acquired of $15 million, which includes the acquisition of Visonic Ltd. ("Visonic"). Visonic is a global developer and manufacturer of electronic security systems and components. Cash paid for Visonic totaled approximately $94 million, net of cash acquired of $5 million by the Company's Commercial Fire and Security segment.

        During the quarter and six months ended March 25, 2011, cash paid for acquisitions included in continuing operations totaled nil and $9 million, primarily within the Company's Flow Control and Commercial Fire and Security segments.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5.    Acquisitions (Continued)

Acquisition and Integration Related Costs

        Acquisition and integration costs are expensed as incurred. During the quarter and six months ended March 30, 2012, the Company incurred acquisition and integration costs of $8 million and $16 million, respectively, primarily in connection with its integration of Brink's Home Security, Inc. ("Broadview Security") during fiscal year 2010, within its ADT North American Residential segment. Such costs are recorded in selling, general and administrative expenses in the Company's Consolidated Statements of Operations for the quarter and six months ended March 30, 2012.

        In conjunction with the acquisitions of Oceania Capital Partners Limited's Signature Security ("Signature Security") and KEF Holdings Ltd. ("KEF") during fiscal year 2011, within its Commercial Fire and Security and Flow Control segments, respectively, and the acquisition of Broadview Security during fiscal year 2010 within its ADT North American Residential segment, the Company incurred acquisition and integration costs of $12 million and $17 million for the quarter and six months ended March 25, 2011 respectively. Such costs are recorded within selling, general and administrative expenses in the Company's Consolidated Statement of Operations.

Dealer Generated Customer Accounts and Bulk Account Purchases

        During the quarter and six months ended March 30, 2012, the Company made cash payments of $166 million and $336 million, respectively, to acquire approximately 148,000 and 292,000 customer contracts for electronic security services primarily within its ADT North American Residential segment.

        During the quarter and six months ended March 25, 2011, the Company made cash payments of $146 million and $279 million, respectively, to acquire approximately 129,000 and 250,000 customer contracts for electronic security services primarily within its ADT North American Residential segment.

6.    Income Taxes

        The Company did not have a significant change to its unrecognized tax benefits during the quarter and six months ended March 30, 2012.

        Many of the Company's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:

Jurisdiction
  Years Open
To Audit
 

Australia

    2004-2011  

Canada

    2002-2011  

Germany

    1998-2011  

Italy

    2004-2011  

South Korea

    2007-2011  

Switzerland

    2002-2011  

United Kingdom

    2000-2011  

United States

    1997-2011  

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Income Taxes (Continued)

        Based on the current status of its income tax audits, the Company believes that it is reasonably possible that between nil and $30 million in unrecognized tax benefits may be resolved in the next twelve months.

        At each balance sheet date, management evaluates whether it is more likely than not that the Company's deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of March 30, 2012, the Company had recorded net deferred tax assets of $1.4 billion, which is comprised of $2.9 billion gross deferred tax assets and $1.5 billion of gross valuation allowances.

Tax Sharing Agreements and Other Income Tax Matters

        In connection with the 2007 Separation, Tyco entered into the 2007 Tax Sharing Agreement that generally governs Covidien's, TE Connectivity's and Tyco's respective rights, responsibilities, and obligations after the 2007 Separation with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the distribution of all of the shares of Covidien or TE Connectivity to qualify as a tax-free distribution for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code ("the Code") or certain internal transactions undertaken in anticipation of the spin-offs to qualify for tax-favored treatment under the Code.

        Under the 2007 Tax Sharing Agreement, Tyco shares responsibility for certain of its, Covidien's and TE Connectivity's income tax liabilities, which result in cash payments, based on a sharing formula for periods prior to and including June 29, 2007. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. income tax returns. The costs and expenses associated with the management of these shared tax liabilities are generally shared equally among the parties. In connection with the execution of the 2007 Tax Sharing Agreement, Tyco established a net receivable from Covidien and TE Connectivity representing the amount Tyco expected to receive for pre-2007 Separation uncertain tax positions, including amounts owed to the Internal Revenue Service ("IRS"). As of March 30, 2012 and September 30, 2011, the aggregate amount of the net receivable was $83 million and $89 million, respectively, of which $67 million and $73 million, respectively, was included in other assets and $16 million was included in prepaid expenses and other current assets for both periods on the Consolidated Balance Sheets. Tyco also established liabilities representing the fair market value of its share of Covidien's and TE Connectivity's estimated obligations, primarily to the IRS, for their pre-2007 Separation taxes covered by the 2007 Tax Sharing Agreement. As of March 30, 2012 and September 30, 2011, Tyco had recorded $405 million and $387 million, respectively, in other liabilities and $6 million and $49 million, respectively, in accrued and other current liabilities. During the quarter ended March 30, 2012, Tyco made a net cash payment of $16 million to Covidien and TE Connectivity related to the resolution of certain IRS audit and pre-Separation tax matters.

        Tyco assesses the shared tax liabilities and related guaranteed liabilities at each reporting period. The receivable and liability were initially recognized with an offset to shareholders' equity in 2007. During the quarters ended March 30, 2012 and March 25, 2011, Tyco recorded expense of $5 million and income of $1 million in accordance with the 2007 Tax Sharing Agreement. During the six months ended March 30, 2012 and March 25, 2011, Tyco recorded expense of $4 million and income of $1 million, respectively, in accordance with the 2007 Tax Sharing Agreement. Tyco will provide payment

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Income Taxes (Continued)

to Covidien and TE Connectivity under the 2007 Tax Sharing Agreement as the shared income tax liabilities are settled. Settlement is expected to occur as the audit process by applicable taxing authorities is completed for the impacted years and cash payments are made. Due to the nature of the unresolved adjustments described in the next paragraph, the maximum amount of potential future payments under the 2007 Tax Sharing Agreement is not determinable. Such cash payments, when they occur, will reduce the guarantor liability as such payments represent an equivalent reduction of risk. Tyco also assesses the sufficiency of the 2007 Tax Sharing Agreement guarantee liability on a quarterly basis and will increase the liability if and when it becomes probable that cash payments expected to be made under the 2007 Tax Sharing Agreement exceed the recorded balance.

        Tyco and its subsidiaries' income tax returns are examined periodically by various tax authorities. In connection with these examinations, tax authorities, including the IRS, have raised issues and proposed tax adjustments, in particular with respect to years preceding the 2007 Separation. The issues and proposed adjustments related to such years are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement. Tyco is reviewing and contesting certain of the proposed tax adjustments. With respect to adjustments raised by the IRS, although the Company has resolved a substantial number of these adjustments, a few significant items are expected to remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, it is unlikely that Tyco will be able to resolve all the open items, which primarily involve the treatment of certain intercompany debt transactions during the period, through the IRS appeals process. As a result, Tyco expects to litigate these matters once it receives the requisite statutory notices from the IRS, which is likely to occur in the next six months. The Company has assessed its obligations under the 2007 Tax Sharing Agreement, including with respect to the proposed civil fraud penalties discussed below, to determine that its recorded liability of $411 million is sufficient to cover the indemnifications made by the Company under such agreement. See Note 19. However, the ultimate resolution of these matters is uncertain and could result in a material adverse impact to the Company's financial position, results of operations, cash flows or the effective tax rate in future reporting periods.

        In connection with the aforementioned audits, the IRS proposed civil fraud penalties against a prior subsidiary that was distributed to TE Connectivity in connection with the 2007 Separation. The penalties allegedly arise from actions of former executives taken in connection with intercompany transfers of stock of Simplex Technologies in 1998 and 1999. Based on statutory guidelines, the Company estimates the proposed penalties could range between $30 million and $50 million. This is a pre-2007 Separation tax liability that is covered by the provisions of the 2007 Tax Sharing Agreement.

        In addition to dealing with pre-2007 Separation tax liabilities of each of the three entities party thereto, the 2007 Tax Sharing Agreement contains sharing provisions to address the contingency that the 2007 Separation itself, or internal transactions related to the 2007 Separation, may be deemed taxable by U.S. or non U.S. taxing authorities. In the event the 2007 Separation is determined to be taxable and such determination was the result of actions taken after the 2007 Separation by Tyco, Covidien or TE Connectivity, the party responsible for such failure would be responsible for all taxes imposed on each company as a result thereof. If such determination is not the result of actions taken by any of the three companies after the 2007 Separation, then Tyco, Covidien and TE Connectivity would be responsible for 27%, 42% and 31%, respectively, of any taxes imposed on any of the companies as a result of such determination. Such tax amounts could be significant. The Company is responsible for all of its own taxes that are not shared pursuant to the 2007 Tax Sharing Agreement's

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6.    Income Taxes (Continued)

sharing formula. In addition, Covidien and TE Connectivity are responsible for their tax liabilities that are not subject to the 2007 Tax Sharing Agreement's sharing formula.

        If any party to the 2007 Tax Sharing Agreement were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party's fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2007 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, the Company could be liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, the Company may be obligated to pay amounts in excess of its agreed-upon share of Tyco's, Covidien's and TE Connectivity's tax liabilities. See Note 19.

        Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

7.    Earnings Per Share

        The reconciliations between basic and diluted earnings per share attributable to Tyco common shareholders are as follows (in millions, except per share data):

 
  For the Quarter Ended
March 30, 2012
  For the Quarter Ended
March 25, 2011
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations

  $ 334     463   $ 0.72   $ 319     472   $ 0.68  

Share options and restricted share awards

        6               5        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments

  $ 334     469   $ 0.71   $ 319     477   $ 0.67  
                               

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7.    Earnings Per Share (Continued)

 

 
  For the Six Months Ended
March 30, 2012
  For the Six Months Ended
March 25, 2011
 
 
  Income   Shares   Per Share
Amount
  Income   Shares   Per Share
Amount
 

Basic earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations

  $ 667     463   $ 1.44   $ 809     480   $ 1.69  

Share options and restricted share awards

        6               5        
                               

Diluted earnings per share attributable to Tyco common shareholders:

                                     

Income from continuing operations attributable to Tyco common shareholders, giving effect to dilutive adjustments

  $ 667     469   $ 1.42   $ 809     485   $ 1.67  
                               

        The computation of diluted earnings per share for the quarter and six months ended March 30, 2012 excludes the effect of the potential exercise of share options to purchase approximately 4 million and 6 million shares, respectively, and excludes restricted stock units of nil for both periods because the effect would be anti-dilutive.

        The computation of diluted earnings per share for the quarter and six months ended March 25, 2011 excludes the effect of the potential exercise of share options to purchase approximately 10 million and 12 million shares, respectively, and excludes restricted stock units of approximately nil and 1 million shares, respectively, because the effect would be anti-dilutive.

8.    Goodwill and Intangible Assets

        Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company tests goodwill for impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for each reporting unit is determined utilizing a discounted cash flow analysis based on the Company's forecast cash flows discounted using an estimated weighted-average cost of capital of market participants. A market approach is utilized to corroborate the discounted cash flow analysis performed at each reporting unit. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired. In determining fair value, management relies on and considers a number of factors, including operating results, business plans, economic projections, including expectations and assumptions regarding the timing and degree of any economic recovery, anticipated future cash flow, comparable market transactions (to the extent available), other market data and the Company's overall market capitalization.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Goodwill and Intangible Assets (Continued)

        Effective in the Company's second fiscal quarter of 2012, the Company reorganized its reportable segments to more closely align with its reporting and management structure, which had been realigned in anticipation of the spin-offs of the Company's ADT North American residential security business and its flow control business. See Note 2. Under the new reporting structure, the former Tyco Security Solutions segment was split between the new ADT North American Residential segment and the new Commercial Fire and Security segment. The new ADT North American Residential segment consists of the residential and small business security business in the United States and Canada that was formerly part of the Tyco Security Solutions segment. The new Commercial Fire and Security segment consists of (i) the former Tyco Fire Protection segment, (ii) the North American commercial security business that was formerly part of the Tyco Security Solutions segment, along with all of the security businesses outside of the United States and Canada, and (iii) the security products business that was formerly part of the Tyco Security Solutions segment. The Company's Flow Control segment continues as it historically has been constituted.

        As a result of the realignment of business activities, the historical amounts have been recast. The changes in the carrying amount of goodwill by segment are as follows ($ in millions):

 
  As of
September 30,
2011
  Acquisitions/
Purchase
Accounting
Adjustments
  Divestitures   Currency
Translation
  As of
March 30,
2012
 

Commercial Fire and Security

                               

Gross Goodwill

  $ 5,997   $ 83   $   $ 40   $ 6,120  

Impairments

    (1,761 )               (1,761 )
                       

Carrying Amount of Goodwill

    4,236     83         40     4,359  
                       

ADT North American Residential

                               

Gross Goodwill

    3,593             5     3,598  

Impairments

                     
                       

Carrying Amount of Goodwill

    3,593             5     3,598  
                       

Flow Control

                               

Gross Goodwill

    2,170     (1 )       4     2,173  

Impairments

                     
                       

Carrying Amount of Goodwill

    2,170     (1 )       4     2,173  
                       

TOTAL

                               

Gross Goodwill

    11,760     82         49     11,891  

Impairments

    (1,761 )               (1,761 )
                       

Carrying Amount of Goodwill

  $ 9,999   $ 82   $   $ 49   $ 10,130  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Goodwill and Intangible Assets (Continued)

 

 
  As of
September 24,
2010
  Acquisitions/
Purchase
Accounting
Adjustments
  Divestitures   Currency
Translation
  As of
September 30,
2011
 

Commercial Fire and Security

                               

Gross Goodwill

  $ 5,841   $ 176   $ (5 ) $ (15 )   5,997  

Impairments

    (1,761 )               (1,761 )
                       

Carrying Amount of Goodwill

    4,080     176     (5 )   (15 )   4,236  
                       

ADT North American Residential

                               

Gross Goodwill

    3,591     2             3,593  

Impairments

                     
                       

Carrying Amount of Goodwill

    3,591     2             3,593  
                       

Flow Control

                               

Gross Goodwill

    1,906     253     (16 )   27     2,170  

Impairments

                     
                       

Carrying Amount of Goodwill

    1,906     253     (16 )   27     2,170  
                       

Electrical and Metal Products

                               

Gross Goodwill

    935         (935 )        

Impairments

    (935 )       935          
                       

Carrying Amount of Goodwill

                     
                       

TOTAL

                               

Gross Goodwill

    12,273     431     (956 )   12     11,760  

Impairments

    (2,696 )       935         (1,761 )
                       

Carrying Amount of Goodwill

  $ 9,577   $ 431   $ (21 ) $ 12   $ 9,999  
                       

        The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets as of March 30, 2012 and September 30, 2011 ($ in millions):

 
  As of
March 30, 2012
  As of
September 30, 2011
 
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
 

Amortizable:

                         

Contracts and related customer relationships

  $ 8,648   $ 5,384   $ 8,225   $ 5,077  

Intellectual property

    604     493     571     483  

Other

    86     27     116     22  
                   

Total

  $ 9,338   $ 5,904   $ 8,912   $ 5,582  
                   

Non-Amortizable:

                         

Intellectual property

  $ 224         $ 212        

Other

    87           86        
                       

Total

  $ 311         $ 298        
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8.    Goodwill and Intangible Assets (Continued)

        Intangible asset amortization expense for the quarters ended March 30, 2012 and March 25, 2011 was $165 million and $152 million, respectively. Intangible asset amortization expense for the six months ended March 30, 2012 and March 25, 2011 was $327 million and $304 million, respectively. As of March 30, 2012, the weighted-average amortization period for contracts and related customer relationships, intellectual property, other and total amortizable intangible assets were 14 years, 19 years, 14 years, and 14 years, respectively.

        The estimated aggregate amortization expense on intangible assets is expected to be approximately $300 million for the remainder of 2012, $525 million for 2013, $450 million for 2014, $375 million for 2015, $325 million for 2016 and $1,459 million for 2017 and thereafter.

9.    Debt

        Debt as of March 30, 2012 and September 30, 2011 is as follows ($ in millions):

 
  As of
March 30,
2012
  As of
September 30,
2011
 

6.0% public notes due 2013

  $ 656   $ 655  

4.125% public notes due 2014

    499     499  

3.375% public notes due 2015

    499     499  

3.75% public notes due 2018

    249     249  

8.5% public notes due 2019

    750     750  

7.0% public notes due 2019

    431     431  

6.875% public notes due 2021

    714     715  

4.625% public notes due 2023

    248     248  

Other(1)(2)

    94     102  
           

Total debt

    4,140     4,148  

Less current portion

    3     2  
           

Long-term debt

  $ 4,137   $ 4,146  
           

(1)
$3 million of the amount shown as other, comprise the current portion of the Company's total debt as of March 30, 2012.

(2)
$2 million of the amount shown as other, comprise the current portion of the Company's total debt as of September 30, 2011.

    Fair Value

        The carrying amount of Tyco's debt subject to the fair value disclosure requirements as of March 30, 2012 and September 30, 2011 was $4,046 million for both periods. The Company has determined the fair value of such debt to be $4,687 million and $4,689 million as of March 30, 2012 and September 30, 2011, respectively. The Company utilizes various valuation methodologies to determine the fair value of its debt, which is primarily dependent on the type of market in which the Company's debt is traded. When available, the Company uses quoted market prices to determine the fair value of its debt that is traded in active markets. As of March 30, 2012 and September 30, 2011,

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.    Debt (Continued)

the fair value of the Company's debt which was actively traded was $4,687 million and $4,689 million, respectively. As of March 30, 2012 and September 30, 2011, the fair value of the Company's debt subject to the fair value disclosure requirements was all actively traded and is classified as Level 1 in the fair value hierarchy. See Note 10 for further details on the fair value hierarchy.

    Commercial Paper

        From time to time, Tyco International Finance S.A. ("TIFSA"), the Company's finance subsidiary may issue commercial paper for general corporate purposes. As of March 30, 2012 and September 30, 2011, TIFSA had no commercial paper outstanding.

    Credit Facilities

        The Company's committed revolving credit facilities totaled $1.5 billion as of March 30, 2012. These revolving credit facilities may be used for working capital, capital expenditures and general corporate purposes. As of March 30, 2012 and September 30, 2011, there were no amounts drawn under the Company's revolving credit facilities. Interest under the revolving credit facilities is variable and is calculated by reference to LIBOR or an alternate base rate. Commitments of $750 million under one of the Company's revolving credit facilities were due to expire on April 25, 2012. On April 25, 2012, the Company amended this credit agreement to extend the expiration date of the facility to September 30, 2012. Simultaneous with the extension, total commitments under the facility were reduced from $750 million to $654 million.

    Debt Issuance/Repayment

        On January 12, 2011, TIFSA issued $250 million aggregate principal amount of 3.75% Notes due on January 15, 2018 (the "2018 Notes") and $250 million aggregate principal amount of 4.625% Notes due on January 15, 2023 (the "2023 Notes"), which are fully and unconditionally guaranteed by the Company. TIFSA received total net proceeds of approximately $494 million after deducting debt issuance costs of approximately $1 million for the 2018 Notes and $2 million for the 2023 Notes, as well as debt discount of approximately $1 million for the 2018 Notes and $2 million for the 2023 Notes. The net proceeds of the aforementioned debt issuances, along with other available funds, were used to fund the repayment upon maturity of all of our outstanding 6.75% Notes due February 2011. The 2018 Notes and the 2023 Notes are unsecured and rank equally with TIFSA's other unsecured and unsubordinated debt.

10.    Financial Instruments

        The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of March 30, 2012 and September 30, 2011. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of investments and Note 9 for the fair value of debt.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Financial Instruments (Continued)

Derivative Instruments

        In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company uses derivative financial instruments to manage exposures to foreign currency, interest rate and commodity price risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes.

        For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documented and linked the relationships between the hedging instruments and hedged items. The Company also assessed and documented at the hedge's inception whether the derivatives used in hedging transactions were effective in offsetting changes in fair values associated with the hedged items. These hedges did not result in any hedge ineffectiveness for the quarters and six months ended March 30, 2012 and March 25, 2011.

        All derivative financial instruments are reported on the Consolidated Balance Sheet at fair value with changes in fair value recognized currently in the Company's Statement of Operations, with the exception of net investment hedges for which changes in fair value are reported in the cumulative translation component of accumulated other comprehensive loss to the extent the hedges are effective. The ineffective portion of the hedge, if any, is recognized in the Consolidated Statement of Operations. The derivative financial instruments and impact of such changes in fair value was not material to the Consolidated Balance Sheets as of March 30, 2012 and September 30, 2011 or Consolidated Statements of Operations and Statement of Cash Flows for the quarters and six months ended March 30, 2012 and March 25, 2011.

Foreign Currency Exposures

        The Company manages foreign currency exchange rate risk through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective is to minimize the income statement impact and potential variability in cash flows associated with intercompany loans and accounts receivable, accounts payable and forecasted transactions that are denominated in certain foreign currencies. As of March 30, 2012 and September 30, 2011, the total gross notional amount of the Company's foreign exchange contracts was $337 million and $836 million, respectively.

        Prior to the quarter ended December 30, 2011, the Company hedged net investments in certain foreign operations through the use of foreign exchange forward contracts. The objective was to minimize the exposure to changes in the value of the foreign currency denominated net investment. As of the quarter ended December 30, 2011, the Company terminated its net investment hedge. Accordingly, the aggregate notional amount of these hedges was nil and $224 million as of March 30, 2012 and September 30, 2011, respectively. Changes in the fair value of forward contracts qualifying as net investment hedges are reported in cumulative translation component of accumulated other comprehensive loss to the extent the hedges are effective. The ineffective portion of the hedge was not material to the Company's Consolidated Statement of Operations for the quarters and six months ended March 30, 2012 and March 25, 2011. These contracts did not have a material impact to the Company's Consolidated Balance Sheet as of September 30, 2011.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10.    Financial Instruments (Continued)

Interest Rate Exposures

        The Company manages interest rate risk through the use of interest rate swap transactions with financial institutions acting as principal counterparties, which are designated as fair value hedges for accounting purposes. Since the third quarter of 2009, TIFSA, the Company's finance subsidiary, has been entering into interest rate swap transactions with the objective of managing the exposure to interest rate risk by converting interest rates of fixed-rate debt to variable rates. In these contracts, TIFSA agrees with financial institutions acting as principal counterparties to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount. As of March 30, 2012 and September 30, 2011, the total gross notional amount of the Company's interest rate swap contracts was $1.2 billion for both periods.

Commodity Exposures

        During fiscal 2012 and 2011, the Company entered into commodity swaps for copper which are not designated as hedging instruments for accounting purposes, and which did not have a material impact on the Company's financial position, results of operations or cash flows.

Counterparty Credit Risk

        The use of derivative financial instruments exposes the Company to counterparty credit risk. If the counterparty fails to perform, the Company is exposed to losses if the derivative is in an asset position. When the fair value of a derivative instrument is an asset, the counterparty has to pay the Company to settle the contract. This exposes the Company to credit risk. However, when the fair value of a derivative instrument is a liability, the Company has to pay the counterparty to settle the contract and therefore there is no counterparty credit risk. Tyco has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having long-term Standard & Poor's and Moody's credit ratings of A-/A3 or higher. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master agreements with substantially all of its counterparties. Master netting agreements provide protection in bankruptcy in certain circumstances and, in some cases, enable receivables and payables with the same counterparty to be offset on the Consolidated Balance Sheets, providing for a more meaningful balance sheet presentation of credit exposure. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties.

        The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. As of March 30, 2012, the Company was exposed to industry concentration with financial institutions as well as risk of loss if an individual counterparty or issuer failed to perform its obligations under contractual terms. The maximum amount of loss that the Company would incur as of March 30, 2012 without giving consideration to the effects of legally enforceable master netting agreements was approximately $38 million.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. Financial Instruments (Continued)

Fair Value of Financial Instruments

        Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:

    Level 1—inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.

    Level 2—inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

    Level 3—inputs for the valuations are unobservable and are based on management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

Investments

        Investments primarily include cash equivalents, U.S. government obligations, U.S. government agency securities and corporate debt securities.

        When available, the Company uses quoted market prices to determine the fair value of investment securities. Such investments are included in Level 1. When quoted market prices are not readily available, pricing determinations are made based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information and benchmark securities. These investments are included in Level 2 and consist primarily of U.S. government agency securities and corporate debt securities.

Derivative Financial Instruments

        As described above, under the caption "Derivative Instruments" derivative assets and liabilities consist principally of forward foreign currency exchange contracts and interest rate swaps. The fair values for these derivative financial instruments are derived from market approach pricing models that take into account the contractual terms and features of each instrument, forward foreign currency rates for the Company's foreign exchange contracts and yield curves for the Company's interest rate swaps existing at the end of the period. Valuations are adjusted to reflect creditworthiness of the counterparty for assets and the creditworthiness of the Company for liabilities. Such adjustments are based on observable market evidence and are categorized as Level 2 exposures. Derivative financial instruments are not presented in the following tables as the derivative financial instruments were not material to any of the periods presented.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. Financial Instruments (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

        The following tables present the Company's assets and liabilities measured at fair value on a recurring basis as of March 30, 2012 and September 30, 2011, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the valuation.

 
  As of March 30, 2012  
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                   

Corporate debt securities

  $   $ 31   $ 31  

U.S. Government debt securities

    82     92     174  
               

Total

  $ 82   $ 123   $ 205  
               

 

 
  As of September 30, 2011  
($ in millions)
  Level 1   Level 2   Total  

Available-for-Sale Securities:

                   

Corporate debt securities

  $   $ 43   $ 43  

U.S. Government debt securities

    101     103     204  
               

Total

  $ 101   $ 146   $ 247  
               

        During the quarter and six months ended March 30, 2012, the Company did not have any significant transfers within the fair value hierarchy.

Other

        The Company had $2.9 billion of intercompany loans designated as permanent in nature as of both March 30, 2012 and September 30, 2011. For the quarters ended March 30, 2012 and March 25, 2011, the Company recorded $73 million and $128 million of cumulative translation gain, respectively, through accumulated other comprehensive loss related to these loans. For the six months ended March 30, 2012 and March 25, 2011, the Company recorded $52 million and $133 million of cumulative translation gain, respectively, through accumulated other comprehensive loss related to these loans.

11. Commitments and Contingencies

        In connection with the 2007 Separation, the Company entered into a liability sharing agreement regarding certain legal actions that were pending against Tyco prior to the 2007 Separation. Under the Separation and Distribution Agreement, the Company, Covidien and TE Connectivity are jointly and severally liable for the full amount of any judgments resulting from the actions subject to the agreement, which generally relate to legacy matters that were not specific to the business operations of any of the companies. Substantially all of these legacy matters have been resolved. Additionally, at the time of the 2007 Separation, the Company, Covidien and TE Connectivity agreed to allocate responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing Agreement. A number of the legacy tax claims remain outstanding. See Note 6.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11. Commitments and Contingencies (Continued)

Legacy Matters

        Tyco is a party to several lawsuits involving disputes with former management, among which are affirmative cases brought by Tyco against Mr. Dennis L. Kozlowski, Mr. Mark Swartz and Mr. Frank Walsh Jr. In connection with these affirmative actions, Mr. Kozlowski, through counterclaims, and Mr. Swartz, through demand letters, are seeking an aggregate of approximately $140 million allegedly due in connection with their compensation and retention arrangements and under the Employee Retirement Income Security Act ("ERISA").

        With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern District of New York ruled in favor of several of the Company's affirmative claims against him before trial, while dismissing all of Mr. Kozlowski's counterclaims for pay and benefits after 1995. A trial on the remaining issues between the parties is scheduled to begin on August 13, 2012. With respect to Mr. Swartz, on March 3, 2011, the same Court granted the Company's motion for summary judgment. The Court further ruled that issues related to damages will need to be resolved at trial. A trial is scheduled to begin September 18, 2012. The Company expects Mr. Kozlowski to contest the decision against him. As a result, the Company has and will continue to maintain the reserve recorded in its Consolidated Balance Sheet for the amounts allegedly due under his compensation and retention arrangements and under ERISA until the appeals process is complete. With respect to Mr. Swartz, any claim which he could have brought against the Company for pay and benefits is time barred by applicable statutes of limitations. During the second quarter of fiscal 2012, the statutes of limitation expired and accordingly the Company reversed the $50 million liability related to his pay and benefits, which was recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. With respect to Mr. Kozlowski's compensation, the Company believes that its existing reserve is sufficient and that the ultimate resolution of the matter will not have a material adverse effect on its financial position, results of operations or cash flows.

        Tyco has also brought an action against Mr. Walsh in connection with the damages suffered by Tyco arising from Mr. Walsh's breach of his fiduciary duties to Tyco. In October 2010, the U.S. District Court for the Southern District of New York denied Tyco's affirmative claims for recovery of damages against Mr. Walsh. In January 2012, the United States Court of Appeals for the Second Circuit reversed the District Court's ruling that Tyco's Board of Directors could ratify breaches of fiduciary duties owed by Mr. Walsh to Tyco's shareholders, and remanded the case to the District Court to resolve certain issues relating to consequential damages. This affirmative matter, and the affirmative matters against Messrs. Kozlowski and Swartz, are not subject to the liability sharing provisions of the Separation and Distribution Agreement. Separately, Mr. Walsh is pursuing a New York state court claim against the Company asserting his entitlement to indemnification. This action is subject to the liability sharing provisions of the Separation and Distribution Agreement.

Environmental Matters

        Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of March 30, 2012, Tyco concluded that it was probable that it would incur remedial costs in the range of approximately $37 million to $86 million. As of March 30, 2012, Tyco concluded that the best estimate within this range is approximately

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11. Commitments and Contingencies (Continued)

$57 million, of which $22 million is included in accrued and other current liabilities and $35 million is included in other liabilities in the Company's Consolidated Balance Sheet. In view of the Company's financial position and reserves for environmental matters, the Company believes that any potential payments of such estimated amounts will not have a material adverse effect on its financial position, results of operations or cash flows.

Asbestos Matters

        The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company's strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future. In addition, the Company continues to assess and evolve its strategy for resolving its asbestos claims, including pursuing other legal alternatives for certain subsidiaries with asbestos liabilities and limited assets. As part of the Company's strategy, it has also entered into a cost-sharing agreement with an entity from which it acquired a business several decades ago. Under the agreement, insurance proceeds from policies that were purchased by the seller prior to its acquisition by the Company have been made available to the Company. To the extent there is insufficient insurance for claims subject to the agreement, the parties are required to share costs, although responsibility for such excess costs gradually transitions to the Company over the next nine to ten years. In 2022, the Company will ultimately be responsible for all excess costs if available insurance policies do not fully respond. While the Company expects that the insurance policies it has gained access to under the agreement will be sufficient to cover any increased liability resulting from this arrangement, it cannot predict whether this will be the case.

        As of March 30, 2012, there were approximately 5,000 lawsuits pending against the Company, its subsidiaries or entities for which the Company has assumed responsibility. Each lawsuit typically includes several claims, and the Company has determined that there were approximately 6,100 claims outstanding as of March 30, 2012, which reflects the Company's current estimate of the number of viable claims made against it, its affiliates or entities for which it has assumed responsibility in connection with acquisitions or divestitures. This amount includes adjustments for claims that are not actively being prosecuted, identify incorrect defendants or are duplicative of other actions.

        Annually, during the Company's third quarter, the Company performs an analysis with the assistance of outside counsel and other experts to update its estimated asbestos-related assets and liabilities. In addition, on a quarterly basis, the Company re-evaluates the assumptions used to perform the annual analysis and records an expense as necessary to reflect changes in its estimated liability and related insurance asset. Due to a high degree of uncertainty regarding the pattern and length of time over which claims will be made and then settled or litigated, the Company uses multiple estimation methodologies based on varying scenarios of potential outcomes to estimate the range of loss. The

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11. Commitments and Contingencies (Continued)

Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is predicated on the Company's legal strategy for resolving its asbestos claims as well as being based on claim experience over the past five years, and a projection which covers claims expected to be filed, including related defense costs, over the next seven years on an undiscounted basis. The Company has concluded that estimating the liability beyond the seven year period will not provide a reasonable estimate, as these uncertainties increase significantly as the projection period lengthens. The Company also periodically evaluates its strategy and the assumptions used in calculating the liability and corresponding insurance assets, including the five year look back and seven year look forward periods to assess whether these assumptions continue to be appropriate in light of trends and developments affecting the Company's claims experience. The Company's estimate of asbestos-related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, solvency and creditworthiness of the insurers. The Company believes that its asbestos-related liabilities and insurance-related assets as of March 30, 2012 are appropriate.

        As of March 30, 2012, the Company's estimated net liability of $52 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $275 million, and separately as an asset for insurance recoveries of $223 million. Similarly, as of September 30, 2011, the Company's estimated net liability of $82 million was recorded within the Company's Consolidated Balance Sheet as a liability for pending and future claims and related defense costs of $306 million, and separately as an asset for insurance recoveries of $224 million.

        The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims and currently available information as well as estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company's insurance carriers. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. However, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.

Compliance Matters

        As previously reported in the Company's periodic filings, the Company has received and responded to various allegations and other information that certain improper payments were made by the Company's subsidiaries and agents in recent years. The Company reported to the Department of Justice ("DOJ") and the SEC the investigative steps and remedial measures that it has taken in response to these and other allegations and its internal investigations. In 2005, the Company informed the DOJ and the SEC that it retained outside counsel to perform a Company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act ("FCPA"), and that it would continue to investigate and make periodic progress reports to these

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11. Commitments and Contingencies (Continued)

agencies. The Company has and will continue to communicate with the DOJ and SEC to provide updates on the baseline review and follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by the Company in the course of its ongoing compliance activities. The baseline review, which has been completed, has revealed that some business practices may not comply with Tyco and FCPA requirements, and in February 2010, the Company initiated discussions with the DOJ and SEC aimed at resolving these matters, which remain ongoing. Although the Company has recorded its best estimate of potential loss related to this matter, it is possible that this estimate may differ from the ultimate loss determined in connection with the resolution of this matter, as the Company may be required to pay material fines, consent to injunctions on future conduct, consent to the imposition of a compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on the Company's financial position, results of operations or cash flows.

        Covidien and TE Connectivity agreed, in connection with the 2007 Separation, to cooperate with the Company in its responses regarding these matters. Any judgment required to be paid or settlement or other cost incurred by the Company in connection with the FCPA investigation matters would be subject to the liability sharing provisions of the Separation and Distribution Agreement, which assigned liabilities primarily related to the former Healthcare and Electronics businesses of the Company to Covidien and TE Connectivity, respectively, and provides that the Company will retain liabilities primarily related to its continuing operations. Any liabilities not primarily related to a particular segment will be shared equally among the Company, Covidien and TE Connectivity.

        As previously disclosed, in early 2007 certain former subsidiaries in the Company's Flow Control business were charged, prior to their divestiture, by the German Federal Cartel Office ("FCO") with engaging in anti-competitive practices, in particular with regard to its hydrant, valve, street box and fittings business. The Company cooperated with the FCO in its investigation and settled the matter during the first fiscal quarter of 2012.

        During the fourth quarter of 2011, the Company reserved $34 million for these compliance matters. As of March 30, 2012, the Company continues to maintain its best estimate of probable loss for these compliance matters which the Company has recorded as a liability in accrued and other current liabilities in the Consolidated Balance Sheet. Due to the sharing provisions in the Separation and Distribution Agreement, the Company has also recorded receivables from Covidien and TE Connectivity related to certain of these compliance matters in other current assets in the Company's Consolidated Balance Sheet as of March 30, 2012.

ERISA Partial Withdrawal Liability Assessment and Demand

        On June 8, 2007, SimplexGrinnell received a notice alleging that it had partially withdrawn from the National Automatic Sprinkler Industry Pension Fund (the "Fund"). Under Title IV of ERISA, if the Fund can prove that an employer completely or partially withdraws from a multi-employer pension plan such as the Fund, the employer is liable for withdrawal liability equal to its proportionate share of the plan's unfunded vested benefits. The alleged withdrawal results from a 1994 labor dispute between Grinnell Fire Protection Systems, SimplexGrinnell's predecessor, and Road Sprinkler Fitters Local Union No. 669.

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11. Commitments and Contingencies (Continued)

        ERISA requires that payment of withdrawal liability be made in full or in quarterly installments commencing upon receipt of a liability assessment from the plan. A plan's assessment of withdrawal liability generally may be challenged only in arbitration, and ERISA requires that quarterly payments must continue to be made during the pendency of the arbitration. If the employer prevails in arbitration (and any subsequent appeals), its quarterly withdrawal liability payments are refunded with interest. The Fund's total withdrawal liability assessment against SimplexGrinnell is approximately $25 million. The quarterly withdrawal liability payments are $1.1 million, $20.9 million of which has been cumulatively paid through March 30, 2012. While the ultimate outcome is uncertain, SimplexGrinnell believes that it has strong arguments that no withdrawal liability is owed to the Fund, and it plans to vigorously defend against the Fund's withdrawal liability assessment. The matter is currently in arbitration. The Company has made no provision for this contingency and believes that its quarterly payments are recoverable.

Broadview Security Contingency

        On May 14, 2010, the Company acquired Broadview Security, which is a business that was formerly owned by The Brink's Company. Under the Coal Industry Retiree Health Benefit Act of 1992, as amended (the "Coal Act"), The Brink's Company and its majority-owned subsidiaries at July 20, 1992 (including certain legal entities acquired in the Broadview Security acquisition) are jointly and severally liable with certain of The Brink's Company's other current and former subsidiaries for health care coverage obligations provided for by the Coal Act. A Voluntary Employees' Beneficiary Associate ("VEBA") trust has been established by The Brink's Company to pay for these liabilities, although the trust may have insufficient funds to satisfy all future obligations. At the time of its spin-off from The Brink's Company, Broadview Security entered into an agreement in which The Brink's Company agreed to indemnify it for any and all liabilities and expenses related to The Brink's Company's former coal operations, including any health care coverage obligations. The Brink's Company has agreed that this indemnification survives the Company's acquisition of Broadview Security. The Company has evaluated its potential liability under the Coal Act as a contingency in light of all known facts, including the funding of the VEBA, and indemnification provided by The Brinks Company. The Company has concluded that no accrual is necessary due to the existence of the indemnification and its belief that The Brink's Company and VEBA will be able to satisfy all future obligations under the Coal Act.

ADT Dealer Litigation

        As previously reported, in 2002, a number of former dealers and related parties have filed lawsuits against the Company in the United States and in other countries, including a class action lawsuit filed in the District Court of Arapahoe County, Colorado, alleging breach of contract and other claims related to ADT's decision to terminate certain authorized dealers in 2002 and 2003. In February 2010, the Court granted a directed verdict in ADT's favor dismissing a number of the plaintiffs' key claims. Upon appeal, the Colorado Court of Appeals affirmed the verdict in ADT's favor in October 2011. The parties agreed to settle this matter in April 2012 with no cash consideration being paid by either side, which is subject to final court approval. Although the Company has favorably resolved the class action lawsuit in Colorado, a number of claims related to the 2002 and 2003 decision to terminate certain authorized dealers outside the United States remain outstanding. During the second quarter of fiscal 2012, the Company recorded its best estimate of probable loss related to these outstanding claims. While it is not possible at this time to predict the final outcome of these lawsuits, the Company

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11. Commitments and Contingencies (Continued)

does not believe these claims will have a material adverse effect on the Company's financial position, results of operations or cash flows.

Telephone Consumer Protection Act

        ADT has been named as a defendant in two punitive class actions that were filed on behalf of purported classes of persons who claim to have received unsolicited "robocalls" in contravention of the U.S. Telephone Consumer Protection Act ("TCPA"). These lawsuits were brought by plaintiffs seeking class action status and monetary damages on behalf of all plaintiffs who allegedly received such unsolicited calls, claiming that millions of calls were made by third party entities on ADT's behalf. ADT asserts that such entities were not retained by, nor authorized to make calls on behalf of, ADT. These matters have been consolidated in the United States District Court for the Northern District of Illinois into one civil action. Each violation under the TCPA provides for $500 in statutory damages ($1,500 if a willful violation is shown). ADT believes that it has meritorious defenses to these claims and, accordingly, intends to vigorously defend against these actions. The Company has made no provision for this contingency as a reasonable estimate of loss cannot be made at this time.

Other Matters

        In addition to the foregoing, the Company is subject to claims and suits, including from time to time, contractual disputes and product and general liability claims, incidental to present and former operations, acquisitions and dispositions. With respect to many of these claims, the Company either self-insures or maintains insurance through third-parties, with varying deductibles. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows beyond amounts recorded for such matters.

Income Tax Matters

        See Note 6 for a more detailed discussion of the status of the Company's outstanding income tax audits.

12. Retirement Plans

        Defined Benefit Pension Plans—The Company sponsors a number of pension plans. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate. The net periodic benefit cost for the Company's material U.S. and non-U.S. defined benefit pension plans is as follows ($ in millions):

 
  U.S. Plans  
 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Service cost

  $ 1   $ 2   $ 3   $ 5  

Interest cost

    10     10     19     21  

Expected return on plan assets

    (11 )   (12 )   (23 )   (25 )

Amortization of net actuarial loss

    3     3     7     6  
                   

Net periodic benefit cost

  $ 3   $ 3   $ 6   $ 7  
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12. Retirement Plans (Continued)

 
  Non-U.S. Plans  
 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Service cost

  $ 4   $ 4   $ 8   $ 9  

Interest cost

    17     17     34     34  

Expected return on plan assets

    (18 )   (17 )   (36 )   (35 )

Amortization of net actuarial loss

    2     3     4     6  
                   

Net periodic benefit cost

  $ 5   $ 7   $ 10   $ 14  
                   

        The estimated net actuarial loss for U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $14 million.

        The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the current fiscal year is expected to be $9 million.

        The Company's funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in fiscal year 2012 of $38 million for U.S. plans and $72 million for non-U.S. plans. During the quarter ended March 30, 2012, the Company made required contributions of $3 million to its U.S. pension plans and $19 million to its non-U.S. pension plans. During the six months ended March 30, 2012, the Company contributed $6 million to its U.S. pension plans and $36 million to its non-U.S. pension plans.

        Postretirement Benefit Plans—Net periodic postretirement benefit cost was not material for both periods.

13.    Shareholders' Equity

Dividends

        Under Swiss law, the authority to declare dividends is vested in the general meeting of shareholders, and on March 7, 2012, the Company's shareholders approved a cash dividend of $0.50 per share, payable to shareholders in two quarterly installments of $0.25 on May 23, 2012 and August 22, 2012. Shareholders also approved a conditional cash dividend of $0.50 per share, payable to shareholders in two quarterly installments of $0.25 on November 15, 2012 and February 20, 2013. Payment of the conditional cash dividend will be made only in the event that the 2012 Separation does not occur prior to the record date for each conditional dividend payment. As a result, the Company recorded an accrued dividend of $231 million as of March 7, 2012 within accrued and other current liabilities and a corresponding reduction to contributed surplus to reflect only the two unconditional quarterly dividend installments.

        On March 9, 2011, the Company's shareholders approved an annual dividend on the Company's common shares of $1.00 per share, which was paid from contributed surplus in four installments of $0.25 per share to shareholders on record on April 29, 2011, July 29, 2011, October 28, 2011 and January 27, 2012. As a result, the Company recorded an accrued dividend of $468 million as of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13.    Shareholders' Equity (Continued)

March 9, 2011 within accrued and other current liabilities and a corresponding reduction to contributed surplus.

Share Repurchase Program

        The Company's Board of Directors approved a $1.0 billion share repurchase program in April 2011. During the six months ended March 30, 2012, the Company repurchased approximately 7 million shares for approximately $300 million under this 2011 share repurchase program, which reduced the amount of common shares outstanding and decreased the dividends declared on the Consolidated Statement of Shareholders' Equity as of March 30, 2012. As of March 30, 2012, approximately $400 million remained outstanding under the 2011 share repurchase program.

        The Company's Board of Directors approved the $1.0 billion 2010 share repurchase program and the $1.0 billion 2008 share repurchase program, in September 2010 and July 2008, respectively. During the six months ended March 25, 2011, the Company repurchased approximately 24 million shares for approximately $1 billion under the 2008 and 2010 share repurchase programs, which reduced the amount of common shares outstanding and decreased the dividends declared on the Consolidated Statement of Shareholders' Equity as of March 25, 2011. The 2008 share repurchase program was completed and the 2010 share repurchase program was substantially completed during the six months ended March 25, 2011.

14.    Redeemable Noncontrolling Interest

        Noncontrolling interest with redemption features, such as put options, that are not solely within the Company's control are considered redeemable noncontrolling interests. The Company accretes changes in the redemption value through noncontrolling interest in subsidiaries net income (loss) attributable to the noncontrolling interest over the period from the date of issuance to the earliest redemption date. Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported in the mezzanine section between liabilities and equity on the Company's Consolidated Balance Sheet at the greater of the initial carrying amount increased or decreased for the noncontrolling interest's share of net income or loss or its redemption value.

        The rollforward of redeemable noncontrolling interest from September 30, 2011 to March 30, 2012 is as follows ($ in millions):

Balance as of September 30, 2011

  $ 93  

Redeemable noncontrolling interest related to acquisitions

    12  

Net Loss

    (2 )

Adjustments to redemption value

    3  
       

Balance as of March 30, 2012

  $ 106  
       

15.    Share Plans

        During the quarter ended December 30, 2011, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 5.0 million, of which 3.4 million were share options, 1.1 million were restricted unit awards and 0.5 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

15.    Share Plans (Continued)

value of the share options, restricted unit awards and performance share unit awards was $12.45, $44.32 and $48.86, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 36%, a risk free interest rate of 1.48%, an expected annual dividend per share of $1.00 and an expected option life of 5.8 years.

        During the quarter ended December 24, 2010, the Company issued its annual share-based compensation grants. The total number of awards issued was approximately 5.9 million, of which 3.9 million were share options, 1.4 million were restricted unit awards and 0.6 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics, which are determined by the Compensation and Human Resources Committee of the Board. The weighted-average grant-date fair value of the share options, restricted unit awards and performance share unit awards was $9.13, $37.29 and $41.17, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 33%, a risk free interest rate of 1.26%, an expected annual dividend per share of $0.84 and an expected option life of 5.2 years.

16.    Consolidated Segment Data

        Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company, from time to time, may realign business and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services.

        Effective in the Company's second fiscal quarter of 2012, the Company reorganized its reportable segments to more closely align with its reporting and management structure, which had been realigned in anticipation of the spin-offs of the Company's ADT North American residential security business and its flow control business. See Note 2. Under the new reporting structure, the former Tyco Security Solutions segment was split between the new ADT North American Residential segment and the new Commercial Fire and Security segment. The new ADT North American Residential segment consists of the residential and small business security business in the United States and Canada that was formerly part of the Tyco Security Solutions segment. The new Commercial Fire and Security segment consists of (i) the former Tyco Fire Protection segment, (ii) the North American commercial security business that was formerly part of the Tyco Security Solutions segment, along with all of the security businesses outside of the United States and Canada, and (iii) the security products business that was formerly part of the Tyco Security Solutions segment. The Company's Flow Control segment continues as it has historically been constituted. As a result, prior period segment amounts have been recast to the current period presentation. The recast financial data does not constitute stand-alone historical financial statements for the entities that will be distributed in the spin-offs (and, in the case of Flow Control, the subsequent merger with Pentair) and does not reflect any adjustments that are likely to be reflected therein. The combined historical financial statements for the entities to be distributed will be contained in the documents to be filed with the SEC in connection with the spin-offs and associated transactions.

        As a result of this realignment, the Company has three reportable segments: Commercial Fire and Security, ADT North American Residential and Flow Control.

        As a result of the realignment of these businesses activities and the reclassification of a business that has been classified as discontinued operations, the revenue and operating income for the quarter

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16.    Consolidated Segment Data (Continued)

and six months ended March 25, 2011 have been recast. Selected information by segment is presented in the following tables ($ in millions):

 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Net revenue(1):

                         

Commercial Fire and Security

  $ 2,551   $ 2,420   $ 5,042   $ 4,861  

ADT North American Residential

    807     768     1,600     1,532  

Flow Control

    996     804     1,919     1,630  

Electrical and Metal Products

                347  
                   

Net revenue

  $ 4,354   $ 3,992   $ 8,561   $ 8,370  
                   

(1)
Net revenue by operating segment excludes intercompany transactions.

 
  For the Quarters
Ended
  For the Six
Months Ended
 
 
  March 30,
2012
  March 25,
2011
  March 30,
2012
  March 25,
2011
 

Operating income (loss):

                         

Commercial Fire and Security

  $ 286   $ 264   $ 579   $ 526  

ADT North American Residential

    194     187     384     360  

Flow Control

    111     86     225     186  

Electrical and Metal Products

                7  

Corporate and Other(1)

    (107 )   (100 )   (232 )   64  
                   

Operating income

  $ 484   $ 437   $ 956   $ 1,143  
                   

(1)
Operating income for the six months ended March 25, 2011 includes a gain of $250 million related to the sale of a majority interest of the Company's former Electrical and Metal Products business. See Note 3.

17.    Inventory

        Inventories consisted of the following ($ in millions):

 
  As of
March 30,
2012
  As of
September 30,
2011
 

Purchased materials and manufactured parts

  $ 532   $ 476  

Work in process

    225     211  

Finished goods

    786     656  
           

Inventories

  $ 1,543   $ 1,343  
           

        Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value.

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18.    Property, Plant and Equipment

        Property, plant and equipment consisted of the following ($ in millions):

 
  As of
March 30,
2012
  As of
September 30,
2011
 

Land

  $ 150   $ 143  

Buildings

    766     760  

Subscriber systems

    6,706     6,464  

Machinery and equipment

    2,349     2,256  

Property under capital leases(1)

    62     62  

Construction in progress

    177     158  

Accumulated depreciation(2)

    (6,060 )   (5,792 )
           

Property, Plant and Equipment, net

  $ 4,150   $ 4,051  
           

(1)
Property under capital leases consists primarily of buildings.

(2)
Accumulated amortization of capital lease assets was $41 million and $40 million as of March 30, 2012 and September 30, 2011, respectively.

19.    Guarantees

        Certain of the Company's business segments have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions. The guarantees would typically be triggered in the event of nonperformance and performance under the guarantees, if required, would not have a material effect on the Company's financial position, results of operations or cash flows.

        There are certain guarantees or indemnifications extended among Tyco, Covidien and TE Connectivity in accordance with the terms of the Separation and Distribution Agreement and the 2007 Tax Sharing Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the 2007 Tax Sharing Agreement. At the time of the Separation, Tyco recorded a liability necessary to recognize the fair value of such guarantees and indemnifications. In the absence of observable transactions for identical or similar guarantees, the Company determined the fair value of these guarantees and indemnifications utilizing expected present value measurement techniques. Significant assumptions utilized to determine fair value included determining a range of potential outcomes, assigning a probability weighting to each potential outcome and estimating the anticipated timing of resolution. The probability weighted outcomes were discounted using the Company's incremental borrowing rate. The liability necessary to reflect the fair value of guarantees and indemnifications under the 2007 Tax Sharing agreement was $411 million and $436 million on the Company's Consolidated Balance Sheets as of March 30, 2012 and September 30, 2011, respectively. Of these amounts $6 million and $49 million are included in accrued and other current liabilities and the remaining amounts in other liabilities as of March 30, 2012 and September 30, 2011, respectively. The guarantees primarily relate to certain contingent tax liabilities included in the 2007 Tax Sharing Agreement. See Note 6.

        In addition, Tyco historically provided support in the form of financial and/or performance guarantees to various Covidien and TE Connectivity operating entities. In connection with the Separation, the Company worked with the guarantee counterparties to cancel or assign these guarantees to Covidien or TE Connectivity. To the extent these guarantees were not assigned prior to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

19.    Guarantees (Continued)

the Separation date, Tyco assumed primary liability on any remaining such support. The Company's obligations were $4 million, which were included in other liabilities on the Company's Consolidated Balance Sheets as of March 30, 2012 and September 30, 2011, respectively, with an offset to shareholders' equity on the Separation date.

        In disposing of assets or businesses, the Company often provides representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company has no reason to believe that the contingencies, if realized, associated with these risks would have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company has recorded liabilities for known indemnifications included as part of environmental liabilities. See Note 11.

        In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations or cash flows.

        The Company records estimated product warranty costs at the time of sale. The changes in the carrying amount of the Company's warranty accrual from September 30, 2011 to March 30, 2012 were as follows ($ in millions):

Balance as of September 30, 2011

  $ 51  

Warranties issued

    12  

Changes in estimates

    1  

Settlements

    (12 )
       

Balance as of March 30, 2012

  $ 52  
       

20.    Tyco International Finance S.A.

        TIFSA, a wholly-owned subsidiary of the Company, has public debt securities outstanding which are fully and unconditionally guaranteed by Tyco. See Note 9. The following tables present condensed consolidating financial information for Tyco, TIFSA and all other subsidiaries. Condensed financial information for Tyco and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.

        In anticipation of the 2012 Separation, the Company has commenced certain steps to restructure the ownership of subsidiaries within Tyco. During the quarter ended March 30, 2012, the Company completed the transfer of certain investments from TIFSA to Tyco. Since the transactions were entirely among wholly-owned subsidiaries of Tyco, there was no impact on the Company's financial position, results of operations and cash flows. The transactions did, however, result in a decrease to TIFSA's investment in subsidiaries. Since these transactions were among entities under common control, their effects have been reflected as of the beginning of the earliest period presented, which resulted in a net decrease to TIFSA's investment in subsidiaries of $117 million as of September 30, 2011.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)

        For the quarter and six months ended March 30, 2012, the operating results of discontinued operations are reflected within the equity in net income of subsidiaries caption in the Condensed Consolidating Statements of Operations. For the quarter and six months ended March 25, 2011, immaterial amounts for Tyco and TIFSA were reflected in the income from discontinued operations, net of income taxes caption and have been conformed to the current year presentation herein.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 4,354   $   $ 4,354  

Cost of product sales and services

            2,676         2,676  

Selling, general and administrative expenses

    3     (1 )   1,107         1,109  

Separation costs

            66         66  

Restructuring, asset impairments and divestiture charges, net

            19         19  
                       

Operating (loss) income

    (3 )   1     486         484  

Interest income

            6         6  

Interest expense

        (59 )   (1 )       (60 )

Other expense, net

    (5 )       (1 )       (6 )

Equity in net income of subsidiaries

    455     314         (769 )    

Intercompany interest and fees

    (129 )   88     41          
                       

Income from continuing operations before income taxes

    318     344     531     (769 )   424  

Income tax benefit (expense)

    1     (7 )   (84 )       (90 )
                       

Income from continuing operations

    319     337     447     (769 )   334  

Income (loss) from discontinued operations, net of income taxes

    8         (15 )       (7 )
                       

Net income

    327     337     432     (769 )   327  

Less: noncontrolling interest in subsidiaries net income

                     
                       

Net income attributable to Tyco common shareholders

  $ 327   $ 337   $ 432   $ (769 ) $ 327  
                       

39


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 25, 2011

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 3,992   $   $ 3,992  

Cost of product sales and services

            2,444         2,444  

Selling, general and administrative expenses

    5         1,080         1,085  

Restructuring, asset impairments and divestiture charges, net

            26         26  
                       

Operating (loss) income

    (5 )       442         437  

Interest income

            9         9  

Interest expense

        (61 )   (2 )       (63 )

Other income (expense), net

    1         (7 )       (6 )

Equity in net income of subsidiaries

    619     284         (903 )    

Intercompany interest and fees

    (300 )   90     210          
                       

Income from continuing operations before income taxes

    315     313     652     (903 )   377  

Income tax expense

        (8 )   (49 )       (57 )
                       

Income from continuing operations

    315     305     603     (903 )   320  

Loss from discontinued operations, net of income taxes

            (4 )       (4 )
                       

Net income

    315     305     599     (903 )   316  

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       

Net income attributable to Tyco common shareholders

  $ 315   $ 305   $ 598   $ (903 ) $ 315  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 8,561   $   $ 8,561  

Cost of product sales and services

            5,219         5,219  

Selling, general and administrative expenses

    7     2     2,223         2,232  

Separation costs

            98         98  

Restructuring, asset impairments and divestiture charges, net

    1         55         56  
                       

Operating (loss) income

    (8 )   (2 )   966         956  

Interest income

            13         13  

Interest expense

        (116 )   (3 )       (119 )

Other expense, net

    (4 )       (10 )       (14 )

Equity in net income of subsidiaries

    910     544         (1,454 )    

Intercompany interest and fees

    (247 )   175     72          
                       

Income from continuing operations before income taxes

    651     601     1,038     (1,454 )   836  

Income tax benefit (expense)

    1     (14 )   (155 )       (168 )
                       

Income from continuing operations

    652     587     883     (1,454 )   668  

Income (loss) from discontinued operations, net of income taxes

    8         (15 )       (7 )
                       

Net income

    660     587     868     (1,454 )   661  

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       

Net income attributable to Tyco common shareholders

  $ 660   $ 587   $ 867   $ (1,454 ) $ 660  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 25, 2011

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Net revenue

  $   $   $ 8,370   $   $ 8,370  

Cost of product sales and services

            5,193         5,193  

Selling, general and administrative expenses

    1     5     2,216         2,222  

Restructuring, asset impairments and divestiture charges (gains), net

            (188 )       (188 )
                       

Operating (loss) income

    (1 )   (5 )   1,149         1,143  

Interest income

            18         18  

Interest expense

        (122 )   (3 )       (125 )

Other income (expense), net

    1         (7 )       (6 )

Equity in net income of subsidiaries

    1,626     890         (2,516 )    

Intercompany interest and fees

    (652 )   180     472          
                       

Income from continuing operations before income taxes

    974     943     1,629     (2,516 )   1,030  

Income tax expense

        (15 )   (205 )       (220 )
                       

Income from continuing operations

    974     928     1,424     (2,516 )   810  

Income from discontinued operations, net of income taxes

            165         165  
                       

Net income

    974     928     1,589     (2,516 )   975  

Less: noncontrolling interest in subsidiaries net income

            1         1  
                       

Net income attributable to Tyco common shareholders

  $ 974   $ 928   $ 1,588   $ (2,516 ) $ 974  
                       

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets

                               

Current Assets:

                               

Cash and cash equivalents

  $   $   $ 1,086   $   $ 1,086  

Accounts receivable, net

            2,441         2,441  

Inventories

            1,543         1,543  

Intercompany receivables

    1,199     1,089     7,750     (10,038 )    

Prepaid expenses and other current assets

    21         971         992  

Deferred income taxes

            401         401  
                       

Total current assets

    1,220     1,089     14,192     (10,038 )   6,463  

Property, plant and equipment, net

            4,150         4,150  

Goodwill

            10,130         10,130  

Intangible assets, net

            3,745         3,745  

Investment in subsidiaries

    37,935     20,940         (58,875 )    

Intercompany loans receivable

    1,921     11,075     20,037     (33,033 )    

Other assets

    68     287     2,219         2,574  
                       

Total Assets

  $ 41,144   $ 33,391   $ 54,473   $ (101,946 ) $ 27,062  
                       

Liabilities and Equity

                               

Current Liabilities:

                               

Loans payable and current maturities of long-term debt

  $   $   $ 3   $   $ 3  

Accounts payable

            1,326         1,326  

Accrued and other current liabilities

    282     50     1,944         2,276  

Deferred revenue

            681         681  

Intercompany payables

    3,632     4,130     2,276     (10,038 )    
                       

Total current liabilities

    3,914     4,180     6,230     (10,038 )   4,286  

Long-term debt

        4,083     54         4,137  

Intercompany loans payable

    22,260     3,137     7,636     (33,033 )    

Deferred revenue

            1,151         1,151  

Other liabilities

    408         2,395         2,803  
                       

Total Liabilities

    26,582     11,400     17,466     (43,071 )   12,377  
                       

Redeemable noncontrolling interest

            106         106  
                       

Tyco Shareholders' Equity:

                               

Common shares

    2,792                 2,792  

Common shares held in treasury

            (1,060 )       (1,060 )

Other shareholders' equity

    11,770     21,991     37,944     (58,875 )   12,830  
                       

Total Tyco Shareholders' Equity

    14,562     21,991     36,884     (58,875 )   14,562  

Nonredeemable noncontrolling interest

            17         17  
                       

Total Equity

    14,562     21,991     36,901     (58,875 )   14,579  
                       

Total Liabilities, Redeemable Noncontrolling Interest and Equity

  $ 41,144   $ 33,391   $ 54,473   $ (101,946 ) $ 27,062  
                       

43


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2011

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Assets

                               

Current Assets:

                               

Cash and cash equivalents

  $   $   $ 1,390   $   $ 1,390  

Accounts receivable, net

            2,400         2,400  

Inventories

            1,343         1,343  

Intercompany receivables

    1,101     1,275     6,821     (9,197 )    

Prepaid expenses and other current assets

    24         872         896  

Deferred income taxes

            402         402  

Assets held for sale

            2         2  
                       

Total current assets

    1,125     1,275     13,230     (9,197 )   6,433  

Property, plant and equipment, net

            4,051         4,051  

Goodwill

            9,999         9,999  

Intangible assets, net

            3,628         3,628  

Investment in subsidiaries

    36,483     19,869         (56,352 )    

Intercompany loans receivable

    1,921     10,115     20,023     (32,059 )    

Other assets

    73     298     2,295         2,666  
                       

Total Assets

  $ 39,602   $ 31,557   $ 53,226   $ (97,608 ) $ 26,777  
                       

Liabilities and Equity

                               

Current Liabilities:

                               

Loans payable and current maturities of long-term debt

  $   $   $ 2   $   $ 2  

Accounts payable

            1,278         1,278  

Accrued and other current liabilities

    321     50     2,036         2,407  

Deferred revenue

            643         643  

Intercompany payables

    3,452     3,369     2,376     (9,197 )    
                       

Total current liabilities

    3,773     3,419     6,335     (9,197 )   4,330  

Long-term debt

        4,091     55         4,146  

Intercompany loans payable

    21,249     3,121     7,689     (32,059 )    

Deferred revenue

            1,143         1,143  

Other liabilities

    398         2,480         2,878  
                       

Total Liabilities

    25,420     10,631     17,702     (41,256 )   12,497  
                       

Redeemable noncontrolling interest

            93         93  
                       

Tyco Shareholders' Equity:

                               

Common shares

    2,792                 2,792  

Common shares held in treasury

            (951 )       (951 )

Other shareholders' equity

    11,390     20,926     36,377     (56,352 )   12,341  
                       

Total Tyco Shareholders' Equity

    14,182     20,926     35,426     (56,352 )   14,182  

Nonredeemable noncontrolling interest

            5         5  
                       

Total Equity

    14,182     20,926     35,431     (56,352 )   14,187  
                       

Total Liabilities, Redeemable Noncontrolling Interest and Equity

  $ 39,602   $ 31,557   $ 53,226   $ (97,608 ) $ 26,777  
                       

44


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended March 30, 2012

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Cash Flows From Operating Activities:

                               

Net cash (used in) provided by operating activities

  $ (187 ) $ 1,003   $ 238   $   $ 1,054  

Cash Flows From Investing Activities:

                               

Capital expenditures

            (431 )       (431 )

Proceeds from disposal of assets

            3         3  

Acquisition of businesses, net of cash acquired

            (205 )       (205 )

Acquisition of dealer generated customer accounts and bulk account purchases

            (336 )       (336 )

Divestiture of businesses, net of cash divested

            (4 )       (4 )

Net increase in intercompany loans

        (996 )       996      

(Increase) decrease in investment in subsidiaries

    (593 )   (7 )   5     595      

Other

            64         64  
                       

Net cash used in investing activity

    (593 )   (1,003 )   (904 )   1,591     (909 )

Cash Flows From Financing Activities:

                               

Net repayments of debt

            (2 )       (2 )

Proceeds from exercise of share options

            88         88  

Dividends paid

    (231 )               (231 )

Repurchase of common shares by treasury

            (300 )       (300 )

Net intercompany loan borrowings (repayments)

    1,011         (15 )   (996 )    

Increase in equity from parent

            595     (595 )    

Other

            (19 )       (19 )
                       

Net cash provided by (used in) financing activities

    780         347     (1,591 )   (464 )

Effect of currency translation on cash

            15         15  
                       

Net decrease in cash and cash equivalents

            (304 )       (304 )

Cash and cash equivalents at beginning of period

            1,390         1,390  
                       

Cash and cash equivalents at end of period

  $   $   $ 1,086   $   $ 1,086  
                       

45


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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

20.    Tyco International Finance S.A. (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended March 25, 2011

($ in millions)

 
  Tyco
International
Ltd.
  Tyco
International
Finance S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  

Cash Flows From Operating Activities:

                               

Net cash (used in) provided by operating activities

  $ (406 ) $ 1,270   $ 48   $   $ 912  

Net cash used in discontinued operating activities

            (8 )       (8 )

Cash Flows From Investing Activities:

                               

Capital expenditures

            (361 )       (361 )

Proceeds from disposal of assets

            5         5  

Acquisition of businesses, net of cash acquired

            (9 )       (9 )

Acquisition of dealer generated customer accounts and bulk account purchases

            (279 )       (279 )

Divestiture of businesses, net of cash divested

            706         706  

Intercompany dividend from subsidiary

        9         (9 )    

Net increase in intercompany loans

        (1,240 )       1,240      

Decrease (increase) in investment in subsidiaries

    52     (5 )   (72 )   25      

Other

        (12 )   35         23  
                       

Net cash provided by (used in) investing activities

    52     (1,248 )   25     1,256     85  

Net cash provided by discontinued investing activities

            259         259  

Cash Flows From Financing Activities:

                               

Net repayments of debt

        (19 )   (18 )       (37 )

Proceeds from exercise of share options

            64         64  

Dividends paid

    (224 )               (224 )

Intercompany dividend to parent

            (9 )   9      

Repurchase of common shares by treasury

    (500 )       (500 )       (1,000 )

Net intercompany loan borrowings

    1,059         181